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5 Things You Need to Know When Short-Selling an Investment Property

As the market continues to drag on and owners are realizing their need to rent for a couple of years until the market comes back, it is affecting them in many ways. Most of these types of owners can’t afford the repairs and maintenance, the vacancy costs, and some are upside down every month if the rent is less than the monthly mortgage note. So, we are finding more and more owners who have been renting their homes are finally giving up and turning to us to help sell the property via short sale. The challenge with this is that most of the properties are tenant-occupied.

Here are five things you need to know in order to short-sell an investment property:

  1. If you have a tenant in the property, you need to read the lease to determine if you can show the property. The tenant has the right to quiet enjoyment under landlord tenant law. This means the landlord can’t just put the property on the market and expect that the tenant will be OK with showing the property.
  2. Most leases have a period of the last 60 days of the lease to show the property, so if you aren’t in that time period, you can terminate the lease and provide 60 days notice. This will provide you with the right to show the property to perspective tenants while still receiving income. Make sure you understand what is owed to the tenant for breaking your lease contract and factor that into the financial equation.
  3. If you are using a professional property management firm, ask them for the total fees for breaking the management contract. Sometimes, if you use the management company to assist you with the transaction, they will lower your termination fees, but make sure you get an exact amount from them in writing.
  4. The bank doesn’t like that the owner has been receiving rent on the property and not paying the note. You can expect that the bank will make you come to closing with some type of funds. What we have seen is typically two months rent as the expectation that the bank will want. However, be aware that it may be more.
  5. If you are thinking about short-selling the property to an investor, you will need to handle the transaction with care. In this case, the new owner will want the tenant to stay in place. So, you have to make sure that the tenant feels comfortable with the transition. This is a lot easier said than done.


In today’s challenging Los Angeles real estate market, selecting the right real estate agent is crucial. It can make all the difference in the world. Whether you’re planning on buying, selling, or you just have a question, feel free to call Toni Patillo. We service the Greater Los Angeles, the Westside, Beverly Hills, and more.

Toni Patillo & Associates
Broker Of Record l DRE#0313287
Keller Williams Realty Santa Monica
2701 Ocean Park Blvd., Ste. 140 • Santa Monica, CA 90405
Office (310) 482-2035 • Fax(424) 744-4148